NOTES IN BUSINESS ORGANIZATION II
Remedial Rights
1. Individual suit;
2. Class or Representative suit;
3. Derivative suit
To reiterate, not all conflicts between the stockholders and the
corporation are classified as intra-corporate. There are other factors to
consider in determining whether the dispute involves corporate matters as to
consider them intra-corporate controversies. (Real v. Sangu Philippines, Inc.
G.R. No. 168757, Januaryn19, 2011.
“It is well settled in this jurisdiction that where corporate directors are
guilty of breach of trust – not of mere error of judgment or abuse of
discretion – an intra-corporate remedy is futile or useless, a stockholder may
institute a suit in behalf of himself and other stockholders and for the benefit
of the corporation, to bring about redress of the wrong inflicted directly upon
the corporation and directly upon the stockholders.” (Cua v. Tan, G.R. Nos.
181455-56, December 4, 2009)
Individual Suit, Representative suit and Derivative Suit
A derivative suit must be differentiated from individual suit and
representative or class suits, thus:
Suits of stockholders or members of a corporation based on wrongful
or fraudulent acts of directors or other persons may be classified into
individual suits, class suits and derivative suits.
1. Where a stockholder or member is denied the right of
inspection, his suit would be individual because the wrong is
done to him personally and not to other stockholders or
corporation.
2. Where the wrong is done to a group of stockholders, as where
preferred stockholders’ rights are violated, a class or
representative suit will be proper for the protection of all
stockholders belonging to the same group.
3. But where the acts complained of constitute a wrong to the
corporation itself, the cause of action belongs to the corporation
and not to the individual stockholder or member.
Derivative Suit
2
In Filipinas Port Services, Inc. v. Go, G.R. No. 161886, March 16,
2007, 518 SCRA 483, 471, the Supreme Court ruled that:
“A derivative action is a suit by a shareholder to enforce a corporate
cause of action. Under the Corporation Code, where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. But an individual stockholder may be permitted to institute a
derivative suit on behalf of the corporation in order to protect or vindicate
corporate rights whenever the officials of the corporation refuse to sue, or
are the ones to be sued, or hold control of the corporation. In such actions,
the corporation is the real party in interest while the suing stockholder, on
behalf of the corporation, is only a nominal party.”
The Supreme Court also ruled in Majority Stockholders of Ruby
Industrial Corporation v. Lim, G. R. No.165887, June 6, 2011, that:
“A derivative action is a suit by a shareholder to enforce a corporate
cause of action. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses of the majority. For this
purpose, it is enough that a member or a minority of stockholders file a
derivative suit for and in behalf of a corporation. An individual stockholder
is permitted to institute a derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is
regarded as the nominal party, with corporation as the party in interest.”
Since it is the corporation that is the real party in interest in a
derivative suit then the reliefs prayed for must be for the benefit or interest
of the corporation. When the reliefs prayed for do not pertain the
corporation, then it is an improper derivative suit.
Requisites of Derivative Suit
1. The party bringing the suit should be a member or shareholder
during the time of the act complained of, the number of shares
not being material;
2. The party has tried to exhaust intra-corporate remedies, i.e, has
made a demand on the board of directors or trustees for the
appropriate relief, but the latter has failed or refused to heed his
plea; and
3. The cause of action actually devolves on the corporation; the
wrongdoing or harm having been or being caused to the
corporation and not the particular stockholder bringing the suit.
(Reyes v. Zenith Insurance Corporation, G.R. No.165744,
August 11, 2008; Lisam Enterprises, Inc. v. Banco de Oro
Unibank, Inc., G.R. No. 143264, April 23, 2012)
3
Bar Exam Year 2015 No. XV
A, B, C, D, and E were members of the 2003-2004 Board of Directors
of FLP Corporation. At the election for the 2004-2005 Board of Directors,
not one of them was elected. They filed in court a derivative suit on behalf
of the Board of Directors. They questioned the validity of the election as it
was allegedly marred by lack of quorum, and prayed for the nullification of
the said election. The 2004-2005 Board of Directors moved to dismiss the
complaint because the derivative suit is not proper. Decide. (4%)
Bar Exam Year 2009 No.11 [a, b, &c]
Atlantis Realty Corporation (ARC), a local firm engaged in real estate
development, plans to sell one of the prime assets - a three-hectare land
valued at about P100 million. For this purpose, the board of directors of
ARC unanimously passed a resolution approving the sale of the property for
P75 million to Shangri-La Real Estate Ventures (SREV), a rival realty firm.
The resolution also called for a special stockholders meeting at which the
proposed sale would be up for ratification.
Atty. Edric, a stockholder who owns only one-share in ARC, wants to
stop the sale. He then commences a derivative suit for and in behalf of the
corporation, to enjoin the board of directors and the stockholders from
approving the sale.
a. Can Atty. Edric, who owns only one share in the company,
initiate a derivative suit? Why or why not? (2%)
b. If such a suit is commenced would it constitute an intra-
corporate dispute? If so, why and where would such a suit be
filed? If not, why not? (2%)
c. Will the suit prosper? Why or why not? (3%)
Bar Exam Year 2004 No. VII [A]
AA, a minority stockholder, filed a suit against BB, CC, DD, and EE,
the holders of majority shares of MOP Corporation, for alleged
misappropriation of corporate funds. The complaint averred, inter alia, that
MOP Corporation is the corporation in whose behalf and for whose benefit
the derivative suit is brought. In their capacity as members of the Board of
Directors, the majority stockholder adopted a resolution authorizing MOP
Corporation to withdraw the suit. Pursuant to said resolution, the corporate
counsel filed a Motion to dismiss in the name of the MOP Corporation.
4
Should the motion be granted or denied? Reason briefly (5%)
An Intra-corporate Dispute
An intra-corporate dispute is understood as suit arising from intra-
corporate relations or between or among stockholders or between any or all
of them and the corporation. Applying what has come the relationship test, it
has been held that the types of actions embraced by the foregoing definition
include the following:
1. Between the corporation, partnership or association and the
public;
2. Between the corporation, partnership or association and its
stockholders, partners, members, or officers;
3. Between the corporation, partnership or association and the
State in so far as its franchise, permit or license to operate is
concerned; and
4. Among the stockholders, partners or associates themselves.
Atty. Zacarias D. Bedona Jr.
Professor
May 15, 2021
